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Ruling

Subject: Capital gains tax - Marriage breakdown - self managed superannuation fund

Question 1: Is rollover relief available when you as trustee of a superannuation fund to which both spouses belong, transfers a capital gains tax (CGT) asset to another superannuation fund to which only one spouse belongs because of a payment split under the Family Law Act 1975 (FLA 1975)?

Answer: Yes.

Question 2: Is rollover relief available when you as trustee of a superannuation fund where one spouse transfers their original interest to another superannuation fund, which was not subject to a payment split under the FLA 1975?

Answer: No.

This ruling applies for the following period

Year ended 30 June 2012

The scheme commenced on

1 July 2011

Relevant facts and circumstances

Person A and their spouse person B jointly set up a self managed superannuation fund (SMSF) (the fund).

Person A and person B were the subject of a Family Court of Australia court order, which included the following wording:

· 'THAT in accordance with s90MT(1)(b) of the Family Law Act:

· The person A is entitled to the specified percentage being 100% of each splittable payment made out of the person B's interest in the self managed superannuation fund;

· Person B entitlement is correspondingly reduced to zero.'

Both spouses were members and held balances separately within the fund subject to the Family Law Court Order.

Person B's interests in the fund will be transferred into person A's new complying superannuation fund.

Person A will transfer their interest in the fund to their new complying superannuation fund.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 126-140

Income Tax Assessment Act 1997 Section 104-10

Income Tax Assessment Act 1997 Section 104-25

Superannuation Industry (Supervision) Regulations 1994

Family Law Act 1975 Section 90MT

Family Law Act 1975 Section 90MD

Reasons for decision

The most common CGT event, CGT event A1, occurs when you dispose of a CGT asset, the time of the event is when you enter into the contract for the disposal or if there is no contract - when the change of ownership occurs.

CGT event A1 will occur when you transfer person B's share in the SMSF to person A under a written agreement that is binding because of a state, territory or foreign law in relation to de facto marriage breakdowns.

CGT event C2 occurs if the CGT asset ends by cancellation, surrender, redemption, release, discharge, satisfaction, abandonment, surrender, or forfeiture of an intangible CGT asset. The time of the event is when you enter into the contract that results in the asset ending, or if there is no contract - when the asset ends.

CGT event C2 will occur when you as the trustee redeem or cancel person A's interests in the fund.

Superannuation interests

A CGT rollover may apply if an interest in a small superannuation fund is subject to a payment split on the breakdown of a marriage and a CGT asset of a small superannuation fund is transferred to another complying superannuation fund.

A trustee of a small superannuation fund qualifies for CGT rollover when the trustee transfer an asset or assets reflecting the entire personal interest of one of the spouses' or former spouses' to the trustee of another complying superannuation fund to the benefit of that spouse.

For the rollover to a superannuation fund where:

· an interest in a complying superannuation fund with four or less members is subject to a payment split, and

· as a result of the payment split, there is a transfer or rollover of benefits, for the benefit of the non-member spouse, from the complying superannuation fund to another complying superannuation fund, and

· the transfer of benefits is under provisions of the Superannuation Industry (Supervision) Regulations 1994 dealing with superannuation interests that are subject to payment splits, and

· the trustee of the first fund subsequently transfers a CGT asset to another small superannuation fund for the benefit of the non-member spouse.

Transfer of interest (person B's) in a small superannuation fund

In your case, person A and person B are the only members of the fund. Person B is transferring their interests in the fund to person A's new complying superannuation fund, and this transfer is in accordance with a financial agreement made under Family Law court order.

Therefore, based on the above information the CGT rollover involving a small superannuation fund applies to the transfer of person B's interest, so any capital gain or capital loss on the transfer of these interests to person A's new complying superannuation fund is disregard.

Transfer of interest (person A's) in a small superannuation fund

CGT event C2 will occur when the portion of the assets that relates to person A's interest in the fund is transferred to her new complying superannuation fund. This interest in the fund is not covered by rollover relief because it was not subject to the payment split.

Therefore, the capital gain or capital loss made by you as the trustee of the original superannuation fund from the transfer of the CGT assets, in satisfaction of the person A's original superannuation interest, to the trustee of another superannuation fund is not disregarded.